Egyptian President Abdel-Fattah al-Sisi has repeatedly exhorted the Egyptian private sector to partner with state agencies in financing and implementing his ambitious investment and development programs. But exhortation has shifted of late to frank pleading.
Speaking on December 22, 2021, for example, Sisi said “[T]his is the fifth and sixth time I say it, we need you and want you to work with us.” Behind his palpable sense of urgency lies a growing realization that, official reassurances notwithstanding, his administration needs to reduce its dependence on borrowing—both domestic and external—to fund its massive infrastructure and housing projects. This comes even as he seeks “certificates of trust” from traditional lenders—his closest allies in the Gulf, namely the United Arab Emirates and Saudi Arabia, and the International Monetary Fund (IMF)—that will help pave the way for further international borrowing.
“Sisi’s newfound enthusiasm for the private sector may be the child of necessity,” as the Economist commented, but it offers an opportunity for reformers. Whether intentionally or not, his admission that “we need you [the private sector], because for the past 40 years we [the state] have proved incompetent in managing our projects” did not single out the military as the exception to his damning assessment, although it has spearheaded his state-led investment strategy over the past eight years. This does not warrant optimism that the president may be ready to reduce the military’s role in delivering a significant share of public goods and services and producing civilian commodities, along lines I have recommended in my recent paper “Retain, Restructure, or Divest? Policy Options for Egypt’s Military Economy.” After all, his apparent change of heart toward the private sector is motivated by dissatisfaction with the pace and results of delivery by the state bureaucracy on the economic policies and goals he has set, rather than by any realization that these policies and goals need revising.
The outcome is therefore likely to be business as usual. But Sisi’s criticism of lackluster state performance nonetheless creates an opening to discuss the pervasive presence of thousands of senior military retirees embedded throughout the massive state apparatus and their dampening influence on performance and, in particular, on private-sector motivation and participation in the economy. What I have labelled elsewhere as the “Officers’ Republic” emerged in the 1990s from the tacit bargain that rewarded the senior officer corps with post-retirement careers in the bureaucracy and often lucrative commercial franchises in return for their loyalty to then president Hosni Mubarak.
Based on my comprehensive review in “Owners of the Republic: An Anatomy of Egypt’s Military Economy,” the core of these self-perpetuating networks comprises several hundred former armed forces officers who are chairmen, managing directors, or members of the boards of state agencies that manage economic assets and of public business sector companies. They undertake production, trade, and services, or award contracts, in these areas of activity, and they control much of the policy and regulatory framework in which the public and private sectors operate. The officers’ republic also includes thousands of additional military retirees at all levels of local government, itself a massive structure that shapes much of economic activity at the provincial level.
Egyptian presidents since Gamal Abdel-Nasser in the 1950s have been disappointed by the private sector’s feeble take-up of their calls to increase its investment. Indeed, as a share of Gross Domestic Product, private investment has been lower under Sisi than it was at the time of Nasser’s Socialist era in the 1960s. So, if the president is now to elicit a better private-sector response, he must work on several fronts, one of which has to be breaking the patterns through which the officers’ republic reproduces itself, prior to dismantling it.
A first pattern is the concentration of military retirees in a wide range of public institutions that shape the economic setting within which the private sector operates, and that may also undertake business activities in partnership, or competition, with it. The officers are often in a position to influence the award (or withholding) of public contracts for the procurement of goods or services, and may favor particular businesses or military-affiliated agencies and companies thanks to their legally sanctioned power to employ noncompetitive bidding (up to certain thresholds) and to curb third-party challenges. The domination of military retirees in sectors such as housing and transport amount to fiefdoms that are preserved and continually renewed. Some senior officers, additionally, rotate among select bureaucratic positions, especially those that act as hubs such as the General Authority for Industrial Development.
My survey in “Owners of the Republic” revealed that as of 2018 retirees held the position of head, deputy head, or board member in 56 percent of 72 general economic authorities responsible for assets and operational budgets, regulatory frameworks, investment and development decisions, and implementation in the most important sectors of the economy. This included the Suez Canal, petroleum, supply and trade, social and health insurance, and public utilities. They also occupied a similar proportion of positions in the so-called national authorities that oversee telecommunications, railways, insurance, pensions, and postal services. They also sat on national councils and centers that undertake planning or set policy for land use, in energy (including nuclear), in oversight, regulation, and audit, and in statistics. Armed forces retirees also headed or sat on the boards of 128 of 374 public-sector companies (35 percent) in the same year.
Second, sectoral fiefdoms are frequently held as sinecures by the armed forces’ different branches of service. This is particularly notable in transport infrastructure (land, maritime, and aviation) and associated services, housing and urban settlements, land reclamation, water and sanitation, mining and quarrying, petroleum, tourism, telecommunications, media, and religious endowments (which own considerable prime real estate). So, Egyptian Air Force retirees dominate aviation companies, as well as virtually all their subsidiaries and regional airports and associated services companies. Their Navy counterparts dominate the Suez Canal Authority and its subsidiary agencies and companies, other maritime shipping and handling companies, and a majority of Egypt’s 43 seaport authorities.
Retirees from the Army and from specialized armed forces agencies, such as the Engineering Authority or Water Department, prevail among military-connected general authorities and public companies in land transport and infrastructure, housing, water and wastewater, and construction and contracting. Signal Corps retirees move into the telecommunications and information technology sectors (the service head sits on the board of Egypt Telecom), while those of the armed forces’ Departments of Clubs and Hotels and of Morale Affairs move into publicly-owned tourism facilities and the Egyptian Radio and Television Union (Maspero) and other media companies, respectively.
Local government represents one of the most important bastions of the officers’ republic. It is bifurcated between elected councils, which have no operational role or power (including to set or spend budgets), and an executive structure wielding real power that consists entirely of appointees. The latter structure is permeated at all levels by military retirees. Starting at the top with the governors of Egypt’s 27 provinces, who are appointed by the president and report to him, and working down through 166 “centers” (clusters of cities) and 200 metropolitan areas, to hundreds of urban wards and at least 920 village councils, local government serves primarily as an instrument of presidential and security control.
Military retirees have been appointed as governors for this reason since the Nasser era, but over the decades have penetrated to every level. A review of office-holders in local government resembles a military roll call: a high proportion of deputies and assistants to governors and to lower-level heads on every rung of the administrative hierarchy are senior retirees, as are directors of their bureaus. Many direct planning, properties, finance, projects, social services departments and provincial branches of public utilities companies. Some hold the position of secretary-general in province- and city-level local councils. Others head departments of the Ministry of Local Development and central bodies such as the rural development and Sinai development agencies. I conservatively estimated a nationwide total of 2,000 in “Above the State” in 2012.
Wherever they are found, military retirees affect the performance of the state’s economic agencies and enterprises, while also influencing the policy and regulatory environment in which the private sector operates. The much-touted claim that armed forces’ officers are superior managers cannot be credibly used to suggest that the poor performance decried by Sisi must be attributed exclusively to their civilian counterparts in the state bureaucracy. To the contrary, as bureaucratic gatekeepers with personal and collective vested interests they replicate the rent-seeking practices that impede the overall performance of the Egyptian state, raising costs and reducing efficiency.
To remedy this state of affairs, the Sisi administration should introduce administrative reforms that strengthen competitive and transparent hiring practices, in order to end the automatic succession of military retirees in senior posts and break military sinecures in state agencies and companies. This could be coupled with government curbs on reemploying armed forces (and other) retirees under the title of “consultants”—a typical form of patronage—and with curtailing the nominal extension of service in the armed forces past retirement age. Such extensions allow retirees to serve in civilian posts while enjoying military entitlements and permanent legal immunity under civilian laws.
Enhanced training for civilian administrators to take over leadership positions should be combined with more robust procedures for registering and acting on complaints and for protecting whistleblowers. Implementing pledges made to the IMF to produce a unified procurement law would limit abuse of powers to award contracts by noncompetitive “direct order,” and reduce nepotism and corruption. Last but not least, the armed forces’ concerns about pay and, especially, pensions should be addressed, so as to disarm the core motive that propels military retirees into the officers’ republic. This can be met partly by drawing on the military’s considerable “special” funds, but should primarily be achieved through a comprehensive review of the defense budget and defense needs.
*This is the third in a series of articles by the author, which are tied to the release of his Carnegie paper, “Retain, Restructure, or Divest? Policy Options for Egypt’s Military Economy.”
